Home Equity Loans vs. Car Title Loans

February 10, 2012

If you own a home and a vehicle, each can be used as collateral to obtain a loan. A loan that uses your home as collateral is called a “Home equity loan“. A loan that uses your vehicle as collateral is called a “Car title loan“.

As you may imagine, such loans differ in multiple ways. Let’s explore the differences between each type of loan.

Ownership

You don’t necessarily have to own your home (in a literal sense) to obtain a home equity loan. You have to “Own” it in the sense that you’re not renting it, but it doesn’t have to be paid off. You just have to have enough equity built up to cover the loan.

To obtain a car title loan, your vehicle generally must be paid off. This means that you must own it outright without any further payments due.

Interest Rates

Interest rates on home equity loans are generally much lower than they are with car title loans.

As an example, I checked the rates for home equity loans in Los Angeles. I used the assumption that the borrower has a good credit score in the 660-749 range. According to Bankrate.com, the following were the rates that are offered:

Ÿ  Wells Fargo – 8.49%

Ÿ  Bank of America – 8.69%

Meanwhile, car title lenders tend to charge a higher rate of interest than those stated.

So, with this and the fact that you don’t have to fully own your own home to get a home equity loan in mind, you may wonder why you shouldn’t just go with such a loan. Below, you’ll find out why.

Credit History

During these tough economic times, many banks are requiring “Good” or “Excellent” credit scores of borrowers. While the definition of a “Good” credit score varies with each source, it is generally above 600. So, if your credit score is not “Good” or better, many banks won’t bother doing business with you.

On the other hand, car title lenders do not place nearly as much emphasis on credit history as banks do. In fact, Car Cash Loans often doesn’t factor in credit history at all. You could have the lowest score in the world and it usually won’t matter.

Processing Time

Most banks take days or weeks to process loans. If you need money quickly, you generally won’t be able to get it through a bank.

Unlike banks, car title lenders typically give out loans on the same day that the customer applies. In fact, Car Cash Loans generally takes around 1 hour to process loan applications. You can walk in, get your loan and be out in less than an hour.

Risk

In each case, you’ll put up an asset as collateral. However, the importance of each asset is where these 2 separate.

Just think about which would cause more trouble in your life – losing your vehicle or losing your home. If you lose your vehicle, you’ll have the options of riding with a friend, using mass transit, riding a bicycle and so on. However, if you lose your home, you’ll have to hope that someone will take you in or you’ll be out on the street. I don’t know about you, but I’d rather put my vehicle on the line than my home any day!

Loan Amount

Bank’s usually require thousands of dollars to be taken out for home equity loans. This won’t work well if you need a smaller amount.

Below are some of the minimum amounts that you’ll find through traditional lenders:

Lender Minimum Home Equity Loan Amount
Wells Fargo $10,000
Bank of America $5,000
Los Angeles Federal Credit Union $5,000

 

As you can see, you’ll have a tough time getting a small home equity loan.

Unlike a traditional lender, a car title lender will often issue loans in amounts of less than $1,000. Car Cash Loans issues loans beginning at $500 – much less than most banks do!

Conclusion

As you can see, a home equity loan may be for you if you need a lot of money, have good or excellent credit and can wait days or weeks for a loan. However, for those who need smaller loans, have credit problems and don’t have time to wait around, car title loans are a better option.

At Car Cash Loans, you can be in and out in around 1 hour. Also, you can get just the amount that you need – not thousands of extra dollars. For those interested in getting smaller loans without a lot of hassle, this could be a much better deal than going with a bank.